REPORT OF EXAMINATION | 2019M-167

DIVISION OF LOCAL GOVERNMENT AND SCHOOL ACCOUNTABILITY

DECEMBER 2019

Town of Chili

Financial Management and Cash Receipts

Contents

Report Highlights . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

Financial Management . . . . . . . . . . . . . . . . . . . . . . . . . . 2

What Is Effective Financial Management? 2

The Board Adopted Unrealistic Budgets 2

The Board Did Not Maintain a Reasonable Level of Fund Balance 5

The Board Did Not Adopt a Multiyear Financial and Capital Plan 7

What Do We Recommend? 7

Cash Receipts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

How Should Officials Properly Collect, Deposit and Record Cash Receipts? 9

The Board Did Not Implement a Town-Wide Cash Receipts Policy 10

Certain Department Software Lacked Necessary Controls 10

Adequate Activity Reconciliations Were Not Performed 12

Some Receipts Were Not Deposited in a Timely Manner 14

Senior Center Receipts Documentation Was Insufficient 15

What Do We Recommend? 16

Appendix A – Response From Town Officials . . . . . . . . . . . . . 18

Appendix B – OSC Comments on the Town’s Response . . . . . . . 21

Appendix C – Audit Methodology and Standards . . . . . . . . . . . 23

Appendix D – Resources and Services . . . . . . . . . . . . . . . . . 26

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Report Highlights

Audit ObjectivesTo determine whether the Board and Town officials adopted realistic budgets and effectively managed fund balance and reserves.

To determine whether Town departments were properly collecting, depositing and recording cash receipts.

Key FindingsThe Board could improve its budgeting and management of fund balance and reserves. The Board:

l Adopted unrealistic budget estimates, which resulted in operating surpluses, unused appropriated fund balances and increasing fund balances in the general and highway funds.

l Did not adopt a multiyear financial and capital plan or detailed reserve plan that included the need and optimal funding level for each reserve.

Town department procedures for cash receipts were deficient because officials lacked adequate documentation for cash receipts collected by certain departments, recorded receipts using deficient software programs and did not always deposit receipts timely, or thoroughly reconcile them.

Key Recommendations l Adopt budgets with realistic estimates.

l Establish a written policy governing the reasonable amount of fund balance to maintain and adopt a multiyear financial and capital plan including a formal detailed plan for reserves.

l Require department officials to maintain and reconcile adequate departmental receipt records.

Town officials disagreed with certain aspects of our findings and recommendations but indicated they planned to implement some of our recommendations. Appendix B includes our comments on issues raised in the Town’s response letter.

BackgroundThe Town of Chili (Town) is located in Monroe County.

The Town is governed by an elected Town Board (Board) composed of the Supervisor and four Board members. The Board is responsible for the general management and control of financial affairs, including establishing financial policies and adopting and monitoring the annual budget. The Supervisor is the chief fiscal officer and budget officer and is generally responsible for the collection and custody of Town funds. The finance director assists the Supervisor with his financial duties including maintaining the accounting records and financial reporting.

Department heads are responsible for overseeing cash receipts. Departments that collect cash include recreation, senior center, Justice Court, finance and Town Clerk/Tax Receiver.

Audit PeriodFinancial management: January 1, 2016 – July 11, 2019, Cash receipts: January 1, 2018 – July 11, 2019

Town of Chili

Quick Facts

Population 28,615

2019 Budget $15.9 million

2018 Collected Receipts $76.6 million

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What Is Effective Financial Management?

The board is responsible for making financial decisions that are in the best interest of the town and its taxpayers. Sound budgeting helps ensure that budgets include realistic estimates for revenues, expenditures and fund balance available for appropriation as a funding source, based on historical or known trends.

By appropriating fund balance in the adopted budget, the board is planning for operating deficits in the amounts appropriated, to decrease surplus fund balance and reduce the real property tax levy. The board may retain a reasonable portion of fund balance for unforeseen circumstances and to provide cash flow to compensate for timing differences between revenues and expenditures.

The board should establish written policies governing unexpended surplus funds1 that should be maintained. Accurate budgeting and sound fund balance management help ensure that real property taxes are not higher than necessary. Multiyear financial and capital plans for a three to five-year period help the board assess long-term needs and alternative approaches to financial issues, such as accumulating fund balance, obtaining financing or using surplus funds to finance annual operations.

The board can legally reserve portions of fund balance to finance future costs for a variety of purposes such as capital projects or large equipment purchases. The board should adopt a reserve plan that clearly communicates the purpose and intent for establishing each reserve fund, the manner in which the board will fund and maintain each reserve, the optimal or targeted funding levels and the conditions under which reserves will be used or replenished.

These plans and policies are an important planning tool for the board and an effective means of communicating the board’s goals and priorities to taxpayers. Board policy requires Town officials to provide the Board with an annual report that includes a summary statement of the projected use of and the need for each reserve fund.

The Board Adopted Unrealistic Budgets

We compared appropriations and estimated revenues other than real property taxes with actual operating results for 2016 through 2018 and found that the Board adopted unrealistic budgets for the general and highway funds. The Board underestimated revenues other than real property taxes by a total of $5.7 million in the general fund and $1 million in the highway fund. The revenue budget variances increased each year in both funds.

Financial Management

1 Surplus fund balance is defined as unrestricted fund balance minus appropriated fund balance and encumbrances included in committed and assigned fund balance. See our accounting bulletin at https://www.osc.state.ny.us/localgov/pubs/releases/gasb54.pdf

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The Board also overestimated expenditures by a total of $1.5 million in the general fund, and $1.7 million in the highway fund. Total budget variances were $7.2 million in the general fund (Figure 1) and $2.7 million in the highway fund (Figure 2).

Figure 1: General Fund Budget Variances and Unused Appropriated Fund Balance 2016 2017 2018 Totals

Estimated Revenuesa $3,510,468 $3,660,123 $3,932,307 $11,102,898Actual Revenuesa $4,891,434 $5,745,672 $6,197,067 $16,834,173Underestimated Revenues $1,380,966 $2,085,549 $2,264,760 $5,731,275Percentage Underestimated 28% 36% 37%Budgeted Appropriationsb $6,342,598 $6,353,618 $6,362,375 $19,058,591Actual Expendituresc $5,848,122 $5,731,982 $6,023,458 $17,603,562Overestimated Appropriations $494,476 $621,636 $338,917 $1,455,029Percentage Overestimated 8% 11% 6%Total Budget Variance $1,875,442 $2,707,185 $2,603,677 $7,186,304Operating Surplusc $883,442 $1,927,185 $1,986,677 $4,797,304Unused Appropriated Fund Balance $1,675,000 $1,500,000 $1,350,000 $4,525,000a We excluded real property taxes (RPT) from our budget-versus-actual revenue analysis because generally all taxes levied are received . For perspective, the tax levy averaged approximately $1 .8 million .b Excludes appropriations for funding general fund reserves which were improperly budgeted as interfund transferc Excludes $1 .5 million unbudgeted transfer to the capital project fund from a capital reserve in 2018

In the general fund, the majority of the revenue variance was for sales tax, which was annually underestimated by an average of $1 million with a three-year total of more than $3 million (67 percent). Despite the significant variances each year, the Board adopted budgets with minimal increases to sales tax estimates averaging $200,000 each year.

Other underestimated revenues included State aid by $806,730 (52 percent), mortgage tax by $630,413 (60 percent) and unbudgeted line items totaling $988,377. For example, the Board did not budget for self-insurance recoveries for workers’ compensation ($620,514) and the sale of equipment ($45,000). Since 2013, when the Town first reported self-insurance revenue, the Town received annual revenues averaging $181,963 and ranging from $44,399 to $370,510.

Expenditure variances were generally spread throughout the budget line items, but included overestimated contractual expenditures for buildings (18 percent), central garage (28 percent), youth programs (24 percent) and drainage (30 percent) each year.

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Figure 2: Highway Fund Budget Variances and Unused Appropriated Fund Balance2016 2017 2018 Totals

Estimated Revenuesa $636,500 $636,500 $633,500 $1,906,500Actual Revenuesa $825,482 $904,125 $1,181,670 $2,911,277Underestimated Revenues $188,982 $267,625 $548,170 $1,004,777Percentage Underestimated 23% 30% 46%Appropriations $4,488,026 $4,693,417 $4,753,063 $13,934,506Actual Expenditures $4,076,141 $4,181,001 $3,947,306 $12,204,448Overestimated Appropriations $411,885 $512,416 $805,757 $1,730,058Percentage Overestimated 10% 12% 20%Total Budget Variance $600,867 $780,041 $1,353,927 $2,734,835 Operating Surplus (Deficit)a ($54,133) ($19,959) $653,927 $579,835Appropriated Fund Balance $655,000 $800,000 $700,000 $2,155,000Unused Appropriated Fund Balance $600,867 $780,041 $700,000 $2,080,908a We excluded real property taxes (RPT) from our budget-versus-actual revenue analysis because generally all taxes levied are received . For perspective, the tax levy averaged approximately $3 .3 million .

In the highway fund, the most significant revenue variances were for State aid, underestimated by $404,430 (96 percent), and unbudgeted equipment sales of $208,996. Significant expenditure variances were for snow removal ($1 million, 35 percent), employee health insurance ($343,511, 20 percent) and services to other governments ($161,996, 16 percent).

Because the Board included unrealistic estimates in its budget, the Town generated general fund operating surpluses each year, ranging from $884,000 to $2 million. In the highway fund, budget variances resulted in small operating deficits, totaling $74,092, that were far less than the amounts planned in 2016 and 2017 and an operating surplus of $653,927 in 2018.

By underestimating revenues and overestimating expenditures, the Board gave taxpayers the impression that it needed to both increase its tax levy in certain years2 and use fund balance to close projected budget gaps. However, the unrealistic estimates actually created annual operating surpluses, or deficits less than the amounts planned, resulting in the accumulation of significant fund balance.

Due to the Board’s budgeting practices, the Town did not use any of the $4.5 million fund balance appropriated in the general fund and $2 million of the $2.2

2 The general fund tax levy increased in 2016 and 2017 for a three-year net increase of $146,302 (9 percent). The highway fund tax levy increased in 2017 and 2018, for a three-year net increase of $192,123 (6 percent).

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million (97 percent) appropriated in the highway fund. The Board may be placing a higher burden on taxpayers than necessary to provide services. Budgeting extra amounts in various line items to accumulate funds was not transparent to taxpayers because the Board did not clearly state why the surpluses were needed

Town officials told us that they budgeted conservatively for sales tax and mortgage tax revenues due to their volatility. The finance director told us that some of the budget decisions may have been driven by the desire to accumulate money for the anticipated community center project.3 However, the Board did not develop or adopt a long-term plan to support maintaining such significant fund balance levels or explain how the funds would be used if it did not move forward with the project.4

Based on our analysis of the 2019 adopted budget, officials budgeted similarly to previous years. We reviewed the operating results through July 2019, and found that general fund revenues were already 75 percent of estimated revenues, and expenditures to date were 59 percent of appropriations. Highway fund revenues were 102 percent and expenditures were 58 percent of budgeted amounts. Therefore, it is likely that both the general and highway funds will end 2019 with operating surpluses, unused appropriated fund balance and increased fund balance.

The Board Did Not Maintain a Reasonable Level of Fund Balance

Fund balance increased to unreasonably high levels in both the general and highway funds from 2016 through 2018 because the Board adopted budgets that included unrealistic estimates for revenues, expenditures and appropriated fund balance and did not establish a written policy governing the reasonable level of fund balance to be maintained.

3 The Board approved a $20 million capital project in April 2018 and the voters approved bond financing for the project in June 2018.

4 Except for documents on the Town website showing financing options with the potential use of reserves for the community center capital project

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Figure 3: General and Highway Fund Balance General Fund Highway Fund

2016 2017 2018 2016 2017 2018Ending Fund Balance $11,179,008 $13,106,193 $13,586,870 $2,533,807 $2,513,848 $3,167,775Less: Restricted $5,284,631 $6,228,189 $5,804,551 $307,587 $415,361 $447,804Less: Nonspendable $73,799 $78,488 $78,553 $56,206 $56,008 $57,703Less: Encumbrances $5,580 $6,975 $67,838 $112,000 $0 $272,497Less: Appropriated Fund Balance $1,500,000 $1,350,000 $1,300,000 $800,000 $700,000 $750,000Surplus Fund Balance $4,314,998 $5,442,541 $6,335,928 $1,258,014 $1,342,479 $1,639,771Percentage of Next Year’s Appropriations

68% 86% 89% 27% 28% 34%

In 2017, officials reported $3 million as assigned fund balance in anticipation of future costs surrounding the possible construction of a new community center. However, at that time, it was uncertain whether the project would be approved, though if it was declined they anticipated other repair-type expenditures to the buildings.

Town officials chose not to reserve these funds to have more flexibility to use them for any purpose if the community center project was not approved. None of these funds were used in 2018. Instead, the Town increased the assigned fund balance to approximately $3.8 million, which was intended to be used toward the construction of the new community center (approved June 2018) and for site and infrastructure improvements in the surrounding area.5

Because the funds are not legally restricted and may be reassigned by Board action, they remain part of surplus fund balance in the general fund, which totaled $6.3 million at the end of 2018, or 89 percent of 2019 appropriations. In June 2019, Town officials transferred the $3.8 million to the capital project fund to use toward the community center project. The Finance Director told us that these funds will be expended and not returned to the general fund, reducing fund balance.

Adopting budgets with overly conservative estimates each year, while also appropriating fund balance that will not be used, is misleading to taxpayers and will continue to generate additional surplus fund balance. Essentially, the unused appropriated fund balance represents available fund balance, increasing total unrestricted fund balance to 107 percent of 2019 appropriations as of December 31, 2018.

5 As shown in the 2018 audited financial statements

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Surplus fund balance in the highway fund totaled $1.6 million, or 34 percent of 2019 appropriations, as of December 31, 2018. Given the lack of a fund balance policy establishing and justifying a reasonable level to be maintained, it is unclear why this level of fund balance is necessary.

It is neither prudent nor equitable to maintain excessive fund balance levels, as funds that could benefit the Town are not being used, thereby placing an unnecessary burden on current taxpayers.

The Board Did Not Adopt a Multiyear Financial and Capital Plan

The Board did not adopt a comprehensive written multiyear financial and capital plan. In the absence of such a plan incorporating the use and funding of reserves, the Board received some information on reserves in the Town’s audited financial statements each year. However, the information provided did not include all the information required by the Board-adopted policy for an annual summary statement on reserve funds. Most significantly, officials did not provide the Board with a detailed reserve plan that included the projected use and need for each reserve or the desired funding levels and the justification for maintaining each reserve balance.

The Town reported 16 reserves6 totaling $6.3 million at the end of 2018. While the capital reserve balances generally appeared reasonable, we question whether balances, as of December 31, 2018, in the workers’ compensation, insurance and assessment reserves, which totaled $2.15 million,7 were reasonable due to the lack of a detailed reserve plan documenting the need and justification for the balances.

The lack of a comprehensive long-term plan, including a plan for the funding and use of reserves, inhibits the Board’s ability to effectively manage finances and address needs without overburdening taxpayers. Without a well-designed written financial and capital plan to assist the Board in making timely and informed decisions about programs and operations, it is less able to provide transparency to taxpayers and effectively manage fund balance in their best interest.

What Do We Recommend?

The Board should:

1. Develop and adopt budgets that include realistic estimates for revenues and expenditures, and which appropriate a reasonable and necessary amount of fund balance.

6 There were 13 general fund reserves (10 capital reserves, workers’ compensation, retirement contribution and insurance reserves), two highway fund capital reserves and one water fund reserve for debt.

7 Workers’ compensation ($1,286,959), insurance ($528,156) and assessment ($336,267)

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2. Adopt a policy governing the amount of surplus fund balance that should be reasonably maintained in each operating fund.

3. Use surplus funds as a financing source for:

l Funding one-time expenditures;

l Funding needed reserves;

l Paying off debt; and

l Reducing property taxes.

4. Develop and adopt a comprehensive multiyear financial and capital plan.

5. Require Town officials to comply with its policy’s annual reporting requirements and clearly communicate to taxpayers the projected use and need, optimal or targeted funding levels and conditions under which each reserve fund will be used or replenished.

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Cash Receipts

Town departments use various software to record cash receipts and issue permits. The Town Clerk’s office receives payments for marriage, dog, hunting and fishing licenses, building permits and real property taxes for the Town and school districts, as Receiver of Taxes. Justices are responsible for adjudicating cases brought before them and accurately accounting for and reporting Court-related financial activities and collecting and recording cash receipts in the Justice Court software.

After the end of each month, the Town Clerk (Clerk) and the Justices turn over their receipts to the Supervisor. The Clerk also remits school taxes to the districts. The senior center and recreation department make deposits directly in a finance department bank account. The finance department also receives and records general receipts, such as State aid.

How Should Officials Properly Collect, Deposit and Record Cash Receipts?

To adequately safeguard cash collections, a board should adopt a town-wide cash receipts policy that establishes a clear and consistent process that requires all departmental collections be adequately documented and deposited timely and intact.8 This process should require employees collecting cash to issue receipts that adequately document the source, date, amount, form (i.e., cash or check) and purpose of the collections. Reconciliation of recorded receipts to detailed activity records (program registrations or issued permits) can aid officials in identifying recordkeeping errors, incorrect fees charged or patterns indicative of fraud.

Receipts produced from accounting software should be issued in consecutive numerical order and documentation should be retained as evidence of collection. If software-generated receipt numbers can be altered, the departments should use and retain copies of pre-numbered manual receipts. The receipt sequence should be periodically reviewed and any missing or duplicate receipt numbers investigated.

It is essential to ensure that software controls are in place so that deletions and adjustments cannot be made without authorization and that there is a process in place to review data entered into and changed in the system. The software should provide a means of determining the identity of individuals who access the software and their activity.

By law town officials are required to deposit collections into the town’s bank accounts within a set number of days, which varies for different officials, and

8 In the same amount and form as received

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sound business practices call for collections to be deposited as soon as possible after receipt to minimize the risk of theft or loss.

The Board Did Not Implement a Town-Wide Cash Receipts Policy

The Board did not adopt a town-wide cash receipts policy to guide departments that collect cash, and did not ensure that the departments implemented effective and sufficient policies and procedures over cash collections. As a result, Town officials could not ensure that departments adequately fulfilled their duties and safeguarded cash receipts.

Without effective and consistent Board guidance, each department established its own procedures, which were not all clearly documented, consistent or effective. As a result, we identified multiple deficiencies in internal controls over and documentation of the cash receipts processes in the various departments.

Certain Department Software Lacked Necessary Controls

Software used by the departments to record receipts and issue permits did not have the controls necessary to maintain data integrity. The IT Director developed the three software applications used to record building and fire permits and senior center receipts to maintain a database to track the related activity. These software applications did not require user identification and allowed changes and deletions to the data, such as permit numbers or receipt transactions. As a result, permits could be issued out of sequential order, duplicate permit numbers could be issued, and staff could issue free permits or collect fees for unrecorded permits or receipts.

Building Department Software – We reviewed the building and fire permits issued by the building department in 2018 and did not identify any missing or duplicate building permit numbers. However, we did identify seven missing fire permit numbers. The fire marshal told us that these were likely voided transactions. In addition, the building department was unable to provide sufficiently detailed reports of zoning and plumbing permits for the year. We reviewed the permit numbers paid for in the Clerk’s office for two test months and were able to determine that all zoning and plumbing permit numbers in the sequence were accounted for. However, we were unable to determine whether the building department issued them in sequence.

Justice Court Software – The Justice Court software allows date and receipt number changes, voided transactions, deletions or adjustments to payment transactions without approval.9 This control weakness could allow the Justices or any Court employee to conceal a theft by issuing a receipt to a customer for the

9 A more secure version of the Justice Court software is available.

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amount received and then deleting that receipt. We reviewed receipt sequences for two sample months and found that receipts were sequentially issued for both Justices and, other than two voided transactions for which the clerks provided adequate documentation, all receipt numbers in the sequence were used.10

Recreation Department Software – The recreation department software allows users to override the cost of registrations to as low as zero, and issue credits or refunds. The recreation director told us that they offer the option of either a refund, which is processed through the Town’s regular disbursement process or a credit issued by recreation staff to the registrant’s account.

However, there are no approvals required of recorded changes before they are posted or finalized. After changes are posted, a request needs to be made to the software vendor to make any changes, which can be done by any recreation staff member. Although the recreation director told us that he instructed staff to limit who performs certain types of transactions, users retained this access in the software because the software options did not give him the ability to limit access to only those functions needed to perform their job duties. Further, the software automatically assigns non-sequential transaction identification numbers to every receipt entered which complicates any review to try to identify missing receipts.

Finance Office Software – The financial software allows the entry of transaction dates that differ from the date the information was entered, and the finance director, as software administrator, has the ability to adjust the automatic receipt numbering sequence.

Town Clerk Software - The Clerk’s software allows for date changes. This ability was commonly used by the Clerk’s office to reprint marriage certificates that were issued before the Clerk began using this particular software because they need to enter the prior date of the certification. However, the monthly report for the month when the transaction occurred did not show any pre-dated transactions. In addition, the Clerk’s office did not generate or review reports with receipt numbers listed to ensure that all receipt numbers were accounted for. Therefore, the Clerk was unable to explain the reasons for missing receipt numbers that we found during the two months tested.11 We determined that these were re-issued receipts.

An effective monitoring tool is the regular review of user access and activities logged within the software. However, a log was not available in the building department or senior center software or the version of the software used by the Justice Court. Additionally, logs or reports of changes were not reviewed in the Clerk’s office or recreation or finance departments.

10 Refer to Appendix C for information on our sampling methodology.

11 Ibid.

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We found that all recorded receipts for the months reviewed were deposited for each department.12 However, given the lack of application controls, officials have no assurance that all receipts were recorded. Altering, adding or deleting receipts or permits increases the risk that funds could be received but not deposited or reported. Further, the lack of accountability may make it difficult to identify the employee making changes or deletions in the software.

Adequate Activity Reconciliations Were Not Performed

Thorough reconciliations were not performed for senior center and recreation program activity or between the Clerk’s office and building department for permits. Given the significant software control deficiencies, these reconciliations would help to identify any potential problems.

Senior Center – The senior center provided a variety of activities for seniors, including events at which they sold concession items. Some activities were free, some had suggested donations and some required a participation fee. Seniors turned in completed event registration forms with their money to senior center staff. Senior center staff recorded receipts in the center’s software. A roster was generated from the software and used as a sign-in sheet for events. However, the senior center staff did not prepare documented reconciliations or comparisons of rosters/sign-in sheets and registration forms to receipts recorded in the software and deposited.

The senior center director told us that reconciliations were performed before and after events, but were not documented. In addition, the process the senior center director described for the after-event reconciliation would not be sufficient because it was performed by the employee who recorded receipts and prepared the deposits. Further, the senior center director told us that the before-event reconciliations sometimes did not balance, which may have occurred due to a fee being waived but not documented.

Because there were no documented reconciliations for the senior center, we compared the rosters, registration forms and recorded receipts for three months during our audit period. We found that recorded receipts were generally reasonable based on the available documentation.13

For our test months, some events had calculated receipt totals that agreed with the rosters and registrations. However, for certain events, the receipt totals were more than amounts calculated from both rosters and registrations. In addition, for certain other events, only two of the three records agreed, or all three records had different totals.

12 Ibid.

13 Refer to “Senior Center Receipts Documentation Was Insufficient.”

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Recreation Department – The recreation department received payments for recreation program registrations and lodge rentals from residents and non-residents. The department used an online registration system that provided participants the option to register themselves and pay online by credit card. Department staff recorded and collected any registrations received in the mail or in-person.

Reconciliations were not performed between the amounts collected and the number of program participants. The recreation director told us that there was no review performed to ensure that participants were charged the correct fees because the software calculated this amount for those registering themselves and only office staff could override the amount due. Performing a reconciliation would help to ensure that fees were correctly entered into the software and would help deter staff from registering participants at reduced rates and pocketing the difference from the charged fee.

For 10 recreation programs, we compared the recorded receipts totaling $77,585 to our calculation of what receipts should have been based on number of participants on the rosters.14 We found that recorded receipts were generally reasonable to, or more than our calculated receipt totals for roster participants. These differences occurred mainly because prorated fees, subsequent transactions for partial payments and refunds were not included on the rosters and credits were not included on the receipt reports.

We compared the fees established as advertised in the Town’s newsletter15 for these 10 programs and the programs with receipts in March 2018 to the amounts charged participants to determine whether the correct fees were charged. Except for minor discrepancies, which we discussed with the recreation director, we found that appropriate fees were generally charged for these programs. However, the department did not have a policy or procedures for practices such as prorating or reducing fees or how refunds and credits should be documented and processed.

Building Department – The building department received applications for building permits, fire permits and other planning and zoning applications. Once the applications were approved, the permits were printed from the applicable software. Generally, after the printed permit was signed, the applicant was telephoned to pick the permit up from and remit permit fees to the Clerk's office. However, applicants were sometimes given their documents in the building department and instructed to take them to the Clerk’s office for payment.

14 Refer to Appendix C for information on our sampling methodology.

15 Not all program fees were listed in the newsletter.

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Town officials did not prepare reconciliations between the number of permits – and related assessed fees - issued by the building department and the fees collected in the Clerk’s office. The fire marshal provided the Clerk with a log of the outstanding fire permits issued, Clerk’s office staff marked permits as paid on the log when payments were received and the fire marshal regularly reviewed the log and marked the permits paid in the software. However, he did not reconcile the amounts charged for fire permits with the amounts collected. Officials did not reconcile the fees charged for any other types of permits issued to the amount of fees collected.

We reconciled building and fire permits issued for 2018 with collections recorded by the Clerk’s office. After accounting for permits issued but not yet picked up, and prior year issued permits paid for in 2018, we found that collections totaled $872 more than the fees charged for permits issued that year. Because the Clerk office staff enter the permit numbers in the description line of their receipts, errors or missed permit numbers could occur, which may account for the difference. Although collections were more than permit data provided in this case, this further demonstrates the need for officials to reconcile the amount collected with the fees charged for permits issued.

Some Receipts Were Not Deposited in a Timely Manner

Town employees did not deposit all receipts for the senior center and recreation department in a timely manner.16 The senior center director told us that they hold receipts with the registration forms and do not record them in the software or deposit them until a few days before the event to provide an easier refund process if there is a cancellation. Based on the receipt dates recorded on the event registration forms reviewed for the month of August 2018, receipts were recorded in the software up to 49 days after receipt. Deposits were generally made within a day of recording the receipts in the software.

The majority of recreation department receipts were deposited in a timely manner, due in part to the majority being paid by credit card through an online registration process or the recreation department office. However, we found receipts totaling $5,689 (5 percent of recreation receipts tested17) that were deposited more than 10 days after receipt. The recreation director told us that he holds receipts until he has a group of them before going to the bank. For example, we found that all of the July non-credit card receipts were deposited at the end of that month.

16 Town Law, Section 29 requires the Supervisor to deposit all money within 10 days after receipt. Recreation and senior center receipts fall under the Supervisor’s responsibility and are deposited directly into related bank accounts.

17 Refer to Appendix C for information on our sampling methodology.

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The longer money remains undeposited, the greater the risk that loss or theft could occur without detection.

Senior Center Receipts Documentation Was Insufficient

Senior center staff did not maintain sufficient documentation to ensure all event participants were correctly charged and all receipts were recorded and deposited. For example:

l Staff did not issue electronic or pre-numbered receipts for cash collections.

l Staff did not maintain sufficient documentation for refunds. Staff issued refunds for certain program events when an event was canceled, or had a waiting list with a limited number of participants. Although the senior center director told us that staff have the seniors sign the initial registration form to show their money was returned, there was not a specific place on the form for this. Therefore, it was unclear whether refunds were issued based on forms that had a signature in a blank or random place and forms did not always show that a refund was issued or the refund date.

l For the lunch club events,18 staff maintained a summary sheet that had the total collected each day along with the signatures of two staff members who verified the amount collected. However, this sheet was unavailable for one of the three months we reviewed. Further, for one month, some amounts had been overwritten with new amounts, but there were no initials from either signer, or explanations for these changes. Therefore, it is unclear whether the totals were adjusted before or after the staff members signed the form verifying the total amount collected.

l Event attendance records were inaccurate. For each event, these generally included a roster/sign-in sheet and event registration forms. However, these records did not always provide sufficient detail and were not entirely accurate to enable comparison with the recorded receipts. For example, the senior center director told us that while staff requested that all attendees signed in for each event, some seniors did not do so and therefore not all attendees were listed on the sign-in sheet.

Additionally, the senior center director told us that she may on occasion have waived a fee, so not all participants who signed-in would have paid. Further, event drivers19 and senior center volunteers were listed on the sign-in sheets, but were not always shown as such non-paying participants. Therefore, it was not clear how many seniors should have paid for the event. Because the

18 This is a suggested donation event that occurs twice every week, sponsored and subsidized by Monroe County.

19 The senior center has a van to transport seniors for certain programs.

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rosters/sign-in sheets (including van transportation) for suggested donation programs did not show who paid and how much was paid and staff did not maintain event registration forms, we were unable to determine the total receipts collected to compare with the summary of collection sheet for these events.

Staff implemented their own procedures because the Board did not adopt an overall policy for departments handling cash receipts. Further, the department’s practices varied from the Supervisor’s expectations. The Supervisor told us that there should be no waived fees and he would expect all participants to pay for an event with a required fee, with limited exceptions for those working the events.

We compared the rosters/sign-in sheets, registration forms and recorded receipts for three months of our audit period.20 Generally, we found that recorded receipts were reasonable to, or more than amounts shown in the supporting documentation. Additionally, based on the registration forms, participants were charged the appropriate fees for the majority of program events. However, staff did not maintain sufficient documentation to ensure that all participants were correctly charged.

All recorded receipts for the three months reviewed totaling $11,620 were deposited and included on monthly reports. However, due to insufficient documentation there was no way for officials to be certain that all receipts were recorded.

What Do We Recommend?

The Board should:

6. Adopt a cash receipts policy to ensure adequate controls are in place and documentation is consistently maintained to support receipts by all departments.

7. Ensure that department heads have implemented adequate written procedures for cash receipt operations to adequately segregate and document duties and comply with its policies.

8. Consider upgrading department software or implement compensating controls for software deficiencies such as issuing pre-numbered duplicate receipts or permits, reviewing receipt sequence, and requiring staff to maintain manual logs documenting reasons for all changes and deletions within the software.

20 Refer to Appendix C for information on our sampling methodology.

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9. Ensure that adequate reconciliations are performed and documented for recreation department and senior center activity and between building department-issued permits/applications and related Clerk receipts.

10. Require department officials to deposit receipts in a timely manner.

11. Ensure that all departments maintain adequate documentation to support collections.

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Appendix A: Response From Town Officials

SeeNote 1Page 21

SeeNote 2Page 21

Office of the New York State Comptroller 19

SeeNote 3Page 21

SeeNote 1Page 21

SeeNote 4Page 21

SeeNote 2Page 21

SeeNote 5Page 21

20 Office of the New York State Comptroller

SeeNote 6Page 22

SeeNote 7Page 22

SeeNote 8Page 22

Office of the New York State Comptroller 21

Note 1

Town officials did not provide or discuss 10-year analyses during our audit when we requested long-term plans to document and support the Board’s budgetary decisions. In an additional effort to review the Town’s planning documents, we visited Town officials on December 11, 2019 and requested a copy of the analyses cited in the response. The Supervisor told us he did not have a plan or analysis, but could put something together if we gave him some time. This statement contradicts the Supervisor’s assertion in the response.

Note 2

Over the past 10 years (2009-2018) sales tax revenue increased annually, from $1.3 million to $2.7 million, and averaged over $2 million. The Board-adopted budgets for 2016 through 2018 underestimated sales tax revenue by $1 million each year. Mortgage tax revenue received during the last 10 years totaled more than $400,000 each year and averaged $525,868, while the Board-adopted budgets in 2016 through 2019 included estimated revenue of only $350,000 each year.

Note 3

While it is prudent to maintain adequate fund balance or to budget conservatively to protect against unforeseen circumstances, doing both may result in taxes that are higher than necessary. As stated in our report, the lack of a comprehensive written multiyear financial and capital plan, including a plan for the funding and use of reserves, inhibited the Board’s ability to effectively manage finances and address needs without overburdening taxpayers and transparently communicate its plans to taxpayers.

Note 4

While the amount of sales tax revenue received by the Town will vary each year, how it is distributed by Monroe County is governed by State statute. Contrary to the Supervisor’s assertion in the response letter, the County cannot unilaterally decide to change or eliminate its sales tax distributions to the Town.

Note 5

The Board is allowed by law to maintain a reasonable amount of fund balance. The Board should establish written policies governing unexpended surplus funds to fit and guide the Town’s needs, and establish and document fund balance goals for its taxpayers.

Appendix B: OSC Comments on the Town’s Response

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Note 6

While useful for their specific purposes, the plans cited do not constitute a comprehensive multiyear financial and capital plan that we recommended to guide long-term budgeting decisions.21

Note 7

Bond rating agencies analyze the risk to investors of the Town’s indebtedness. Our financial management audit objective was to determine whether the Board and Town officials adopted realistic budgets and effectively managed fund balance and reserves.

Note 8

We did not recommend limiting the programs provided to seniors. Our recommendation is to adopt a cash receipts policy to ensure adequate controls are in place and documentation is consistently maintained to support receipts by all departments, including the senior center.

21 Refer to our publications Multiyear Financial Planning and Multiyear Capital Planning www.osc.state.ny.us/localgov/pubs/lgmg/multiyear.pdf www.osc.state.ny.us/localgov/pubs/lgmg/capital_planning.pdf.

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Appendix C: Audit Methodology and Standards

We conducted this audit pursuant to Article V, Section 1 of the State Constitution and the State Comptroller’s authority as set forth in Article 3 of the New York State General Municipal Law. To achieve the audit objectives and obtain valid audit evidence, our audit procedures included the following:

l We interviewed Town officials and employees and reviewed Board minutes and policy to gain an understanding of the budget process, financial management policy and procedures, the cash receipts process including software controls and the monitoring of fund balance.

l To assess budget reasonableness and identify which categories contributed the most to budget variances, we compared budget estimates to actual results for 2016 through 2018 for the general and highway funds. We also compared the 2019 adopted budget to determine whether trends in the Town’s budgeting practices continued.

l We reviewed operating results for the general and highway funds and compared the results to the appropriated fund balance to determine whether appropriated fund balance was used as budgeted.

l We analyzed fund balance, including reserve balances, for the general and highway funds and calculated unrestricted and surplus fund balance as a percentage of expenditures and next year’s appropriations to help evaluate the reasonableness of the amount maintained.

l We analyzed reserves and related expenditures to determine whether they were properly established, used and funded and whether balances were reasonable.

l We performed departmental cash counts to document all cash on hand on December 4, 2018.

l For our tests of cash receipts, we randomly selected two months from 2018 (July and December) for testing within the Justice Court, Town Clerk’s office, recreation, senior center, and finance departments. We used our professional judgment to select two months with interest due for tax collections (February and October). Additionally, we used our professional judgment to select another month with the most recorded receipts for the recreation department (March) and senior center (August) for testing.

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Figure 4: Collected and Tested Receipts

Department Total Tested Total CollectedPercent Tested

Town Clerk $190,547 $580,054 33%Taxa $35,701,820 $60,025,541 59%Justice Court $ 44,851 $327,000 14%Senior Center $11,620 $35,500 33%Recreation Department $110,319 $471,895 23%Financeb $931,601 $15,164,124 6%Total $36,990,758 $76,604,114 48%a Includes town, county and school taxesb Includes receipts collected in other departments – Clerk, Tax, Justice Court, Senior Center and Recreation Department

l For the test months, we:

l Documented cash collections within the various departments based on the electronic receipt records for that department.

l Obtained bank deposit compositions and compared recorded receipts to deposits to determine whether receipts were deposited timely and intact. For taxes handled by lockbox, we compared batch totals on lockbox statements to bank deposits.

l Reviewed tax payment envelopes to recorded receipt dates and recalculated late payment interest and penalties to determine whether appropriate interest and penalties were charged.

l Reviewed disbursement records and monthly reports to determine whether all money remitted by the departments to various entities was properly disposed and reported.

l Compared approved fee schedules for Clerk and building department receipts to the receipt records to determine whether appropriate fees were charged.

l Compared registration records and other available supporting documentation to recorded receipts and attendee lists for the senior center to determine if all attendees paid and payments were properly recorded and deposited.

l Compared senior center program fees charged to those advertised in the Town’s newsletter or event fliers.

l Reviewed reconciliations/accountabilities or prepared reconciliations.

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l For August 2018 senior center receipts, we compared the date received as documented on event registration forms to the date recorded and deposited to determine whether the receipts were deposited in a timely manner.

l We reviewed receipt and permit records for 2018 to determine whether there were any gaps in receipt and permit numbers. When annual electronic data was not available, we reviewed the sequence for the test months.

l We organized all 2018 recreation department receipts by program and grouped similar programs into categories of similar types of activities for our sample selection. We used our professional judgment to select 10 programs from the 103 groupings of similar activities based on large receipt amounts or the volume of participants within the programs. The receipts for these 10 programs totaled $77,585, 16 percent of the total $474,191 program receipts for 2018. For these programs, and the programs with receipts in the selected test month, we compared advertised fees from the Town’s newsletter to those charged. We discussed the differences with the recreation director to determine whether there were adequate explanations for these differences.

We conducted this performance audit in accordance with GAGAS (generally accepted government auditing standards). Those standards require that we plan and perform the audit to obtain sufficient, appropriate evidence to provide a reasonable basis for our findings and conclusions based on our audit objective. We believe that the evidence obtained provides a reasonable basis for our findings and conclusions based on our audit objective.

Unless otherwise indicated in this report, samples for testing were selected based on professional judgment, as it was not the intent to project the results onto the entire population. Where applicable, information is presented concerning the value and/or size of the relevant population and the sample selected for examination.

The Board has the responsibility to initiate corrective action. A written corrective action plan (CAP) that addresses the findings and recommendations in this report should be prepared and provided to our office within 90 days, pursuant to Section 35 of General Municipal Law. For more information on preparing and filing your CAP, please refer to our brochure, Responding to an OSC Audit Report, which you received with the draft audit report. We encourage the Board to make the CAP available for public review in the Clerk’s office.

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Appendix D: Resources and Services

Regional Office Directory www.osc.state.ny.us/localgov/regional_directory.pdf

Cost-Saving Ideas – Resources, advice and assistance on cost-saving ideas www.osc.state.ny.us/localgov/costsavings/index.htm

Fiscal Stress Monitoring – Resources for local government officials experiencing fiscal problems www.osc.state.ny.us/localgov/fiscalmonitoring/index.htm

Local Government Management Guides – Series of publications that include technical information and suggested practices for local government management www.osc.state.ny.us/localgov/pubs/listacctg.htm#lgmg

Planning and Budgeting Guides – Resources for developing multiyear financial, capital, strategic and other plans www.osc.state.ny.us/localgov/planbudget/index.htm

Protecting Sensitive Data and Other Local Government Assets – A non-technical cybersecurity guide for local government leaders www.osc.state.ny.us/localgov/pubs/cyber-security-guide.pdf

Required Reporting – Information and resources for reports and forms that are filed with the Office of the State Comptroller www.osc.state.ny.us/localgov/finreporting/index.htm

Research Reports/Publications – Reports on major policy issues facing local governments and State policy-makers www.osc.state.ny.us/localgov/researchpubs/index.htm

Training – Resources for local government officials on in-person and online training opportunities on a wide range of topics www.osc.state.ny.us/localgov/academy/index.htm

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ContactOffice of the New York State Comptroller Division of Local Government and School Accountability 110 State Street, 12th Floor, Albany, New York 12236

Tel: (518) 474-4037 • Fax: (518) 486-6479 • Email: localgov@osc.ny.gov

www.osc.state.ny.us/localgov/index.htm

Local Government and School Accountability Help Line: (866) 321-8503

ROCHESTER REGIONAL OFFICE – Edward V. Grant Jr., Chief Examiner

The Powers Building • 16 West Main Street – Suite 522 • Rochester, New York 14614-1608

Tel (585) 454-2460 • Fax (585) 454-3545 • Email: Muni-Rochester@osc.ny.gov

Serving: Cayuga, Chemung, Livingston, Monroe, Ontario, Schuyler, Seneca, Steuben, Wayne, Yates counties